Tuesday, January 03, 2012

Everything's Amazing and Nobody's Happy, Even When Sitting in a Chair in the Sky with Internet

According to tech writer Dan Frommer (via The Economist and Matt Yglesias), in-flight Internet access through Gogo is apparently not very popular with air travelers, and only about 4% of passengers on flights offering Gogo's Wi-Fi actually pay for online access. The writer for The Economist claims that Gogo's internet connections are slow and unreliable.

I'm proud to be part of "the 4%" because I've purchased Gogo's online access on every Delta flight I've taken in the last two years, and have found the connection speeds to be fast and reliable for email, blogging and Internet browsing (not sure about movies or YouTube). The connection fees seems pretty reasonable to me. For example, you can purchase advance access for $4.95 for flights up to 1.5 hours, and there is usually an in-flight, 15-minute option for only $1.95 if you just want to do a quick check for email.

In the clip above, Louis C.K. discusses in-flight internet access starting at about 3:30 and points outs that "we live in an amazing, amazing world, and it's being wasted on the crappiest generation of spoiled idiots," maybe like The Economist writer above who is "flying through the air sitting in chair" to quote Louis C.K., and "experiencing the miracle of human flight" and at the same time getting access to the Internet, and then complaining about an occasional slow connection (which has not been my experience). "Like how quickly the world owes him something (a fast internet connection) that didn't even exist a few years ago...."

ND Oil Boom Fuels Real Estate Sales in Arizona

USA Today --- "Flush with cash from an oil boom and plentiful jobs, North Dakotans are snapping up homes 1,500 miles away in balmy Arizona, where prices have plunged since the real estate bubble burst.

"It boils down to the weather and taking advantage of the market," says real estate agent Rocky Parra of HomeSmart Realty in Gilbert, Ariz., a Phoenix suburb. He and wife Beverly, a native of Minot, N.D., have sold eight homes to North Dakotans in recent months. Parra is heading to North Dakota this month to meet with possible buyers.

"A lot of people have struck it rich," he says. "Oil companies are coming in and buying businesses and land. They're selling up there at the peak and buying down here at the bottom." Some want second homes. Others move outright."

MP: Drill, drill, drill in North Dakota = jobs, jobs, jobs = real estate sales, sales, sales in Arizona. This provides another excellent example of the many positive spillover benefits of America's new age of energy abundance.

Las Vegas Home Sales Increase in November for 5th Month; But Two-Thirds of Sales Are Distressed

DQ News -- "The number of homes sold in the Las Vegas area rose year-over-year for the fifth consecutive month in November as a surge in sub-$200,000 transactions made up for a decline in activity above that threshold. Prices appeared flat, with the region’s overall median sale price stuck at $115,000 for the third consecutive month.

The number of Las Vegas homes that resold rose 11.3 percent on a year-over-year basis, marking the 11th consecutive month in which resales have posted an annual gain. It was the highest number of resales for a November since 2009, and the second-highest since 2005. November sales of newly-built homes also rose from a year earlier, by 9.8 percent, but were still the second-lowest on record for a November. New-home sales have risen year-over-year for the past five consecutive months.

Total sales last month were 2.0 percent higher than the average number of homes sold in November since 1994, while resale activity (excludes new homes) was 45.5 percent above average for a November.

Distressed property sales – the combination of foreclosure resales and “short sales” – made up more than two-thirds of the Las Vegas resale market last month.

Foreclosure resales – homes that had been foreclosed on in the prior 12 months – accounted for 52.4 percent of the Las Vegas resale market in November. That was down from 52.8 percent in October and 53.1 percent a year earlier. Foreclosure resales peaked at 73.7 percent of the resale market in April 2009. Last month’s figure was the lowest since September 2010, when it was 50.8 percent.

Short sales – transactions where the sale price fell short of what was owed on the property – made up an estimated 14.8 percent of Las Vegas-area November resales. That compares with an estimated 12.7 percent in October, 13.2 percent a year ago, and 11.7 percent two years ago."

MP: There's still a lot of distress in the Las Vegas real estate market, but the ongoing monthly increases in the number of homes sold suggest that the excess inventory of unsold homes is starting to clear, and the market there is gradually recovering. With no increases in home prices, the increases in sales activity should continue.

Monday, January 02, 2012

George Will on America's Energy Abundance and Why Progressives Crave Energy Scarcities

"In 2011, for the first time in 62 years, America was a net exporter of petroleum products. For the indefinite future, a specter is haunting progressivism, the specter of abundance. Because progressivism exists to justify a few people bossing around most people and because progressives believe that only government’s energy should flow unimpeded, they crave energy scarcities as an excuse for rationing — by them — that produces ever-more-minute government supervision of Americans’ behavior.

Imagine what a horror 2011 was for progressives as Americans began to comprehend their stunning abundance of fossil fuels — beyond their two centuries’ supply of coal. Progressives responded with attempts to impede development of the vast, proven reserves of natural gas and oil here and in Canada. They bent the willowy Obama to delay approval of the Keystone XL pipeline to carry oil from Canadian tar sands; they raised environmental objections to new techniques for extracting gas and “tight” oil from shale formations."

A New Age of Energy Abundance in the U.S.

"You'll know the U.S. energy industry is really on the rebound when North Dakota's newfangled Bakken oil field starts pumping more crude than Alaska's stalwart Prudhoe Bay. Energy experts expect it to happen in 2012 (see chart above).

Dwindling production from the once-mighty Alaskan field has been a symbol of what was once seen as the slow, inexorable decline of U.S. oil. But new technologies have turned that overall decline into an increase, led by the Bakken shale, which in July produced 424,000 barrels a day, to Alaska's 453,000.

Rising oil production from the Bakken and other nontraditional fields is expected to add 250,000 barrels of oil a day to U.S. production, according to the International Energy Agency, even as conventional oil production falls. If overall trends continue, daily U.S. oil output could be up by 1 million barrels a day by 2016, to 6.6 million.

"I didn't see it, and I don't know anyone else who saw it coming," said James L. Williams of WTRG Economics, an energy consultancy in London, Ark.

Crude-oil imports are falling, balance-of-trade payments are improving and thousands of oil-field jobs are being created from Texas to Ohio, from West Virginia to Wyoming. Moreover, the U.S. is beginning to export a significant amount of diesel and gasoline refined from crude and could begin exporting chilled natural gas next year.

The Bakken wasn't discovered so much as unlocked. The energy industry figured out that a combination of technologies—hydraulic fracturing and vertical wells that turn underground to run horizontally through oil-rich rock—could free petroleum and natural gas trapped in dense rock formations.

New technologies are now being applied to the Eagle Ford oil field in South Texas. In August, the field produced about 109,000 barrels a day, according to state records, compared with 3,100 barrels two years earlier. Output is expected to quadruple over the next five years.

Next up: The Utica oil field in eastern Ohio and Pennsylvania. Its existence was disclosed last July, and activity is just starting to ramp up. Chesapeake Energy Corp.'s chief executive, Aubrey McClendon, said last summer that "pound for pound, foot for foot, the Utica rock is going to be better than the Eagle Ford." As more wells are drilled in 2012, this boast will be tested."

Lesson of the Financial Crisis: Too Many "Dumb" Regulations. We Need "Smarter," Not More Regs

I am often asked, "doesn't the financial crisis mean we need more regulation?" It's one of those maddening questions, because the answer is "that's the wrong question," which gets you nowhere.

For regulation is not "more" or "less," something you just pour into a cup until you've had enough like a good beer. Regulation is most of all "smart" or "dumb." Dumb regulations produce the opposite of their intended effects, have all sorts of unintended consequences, or get used for fully intended but pernicious consequences like driving out competition. Smart regulations don't.

The main lesson of the financial crisis is not that we did not have "enough" regulations -- we had hundreds of thousands of pages of regulation. The lesson of the financial crisis is that most of those were "dumb" regulations. Their massive unintended consequences led to a fragile financial structure. Yes, we need financial regulation, but "smarter," not necessarily more."

MP: For examples of "smarter" financial and banking regulations, we can look north to our Canadian neighbor. While our historically fragile banking system lead to 9,000 bank failures during the Great Depression, about 3,000 bank failures during the S&L crisis, and 427 bank failures from 2008-2011 from the "Great Recession," Canada experienced almost no bank failures during any OF those periods. What's so "smart" about Canada's regulations that allowed it to avoid the thousands of bank failures that occurred in the U.S.?

1. Canada never restricted branch banking the way the U.S. did until 1994. By forcing banks to operate in a single state, they were forced to generally be small and non-diversified in their loan portfolios. This was an especially important factor in the 9,000 U.S. bank failures during the 1930s when Canada had none.

2. Canada's underwriting standards for home mortgage lending are much more conservative than the U.S. and capital requirements for banks are much higher.

3. Canada doesn't have an equivalent to our GEE-sponsored secondary mortgage market (no Fannie or Freddie), so the Canadian banks that originate home mortgages typically keep most of those loans on their own balance sheets, which is another factor that keeps underwriting standards much more conservative than in the U.S. In the U.S. there's more of an incentive to originate mortgages and then sell them in the secondary market, which then allows the banks to lend more.

4. Mortgages in Canada are full recourse loans, meaning that the homeowner/borrower is responsible for their mortgage debt even if they lose their home through foreclosure. In most U.S. states, homeowners can live in their home for several years or more without making payments, walk away following foreclosure, and then are not held responsible for the deficiency. Not so in Canada. The banks there will follow you forever, and even garnish your wages.

5. Most mortgages in Canada generally require a 20% down payment, and there are no 30-year fixed rate mortgages. Canadian banks will issue 25-year or 30-year mortages, but interest rates are adjusted every five years, like a 5-year ARM. If a borrower in Canada can't come up with the 20% down payment, they have to purchase mortgage insurance from a private insurance company and pay the full premium up front. And the private mortgage insurance company has to approve the property appraisal before the deal can go through.

2011: The Year in "Typo's"

"Decline of Manufacturing" is Global Phenomenon: And Yet the World Is Much Better Off Because of It

The chart above shows manufacturing output as a share of GDP, for both the "world less the U.S." and the U.S. alone, using United Nations data for GDP and its components at current prices in U.S. dollars from 1970 to 2010. We hear all the time from Donald Trump and others about the "decline of U.S. manufacturing," about how nothing is made here any more, and how everything that used to be made here is now made in China and other low wage countries. An underlying assumption of most of those claims is that if the manufacturing base is shrinking in the U.S. (the "hollowing out of U.S. manufacturing"), that there is an offsetting manufacturing gain that is captured elsewhere in the world, as manufacturing output supposedly shifts from the U.S. to other countries, with world manufacturing remaining constant.

In reality, the chart above shows that the decline in U.S. manufacturing as share of GDP between 1970 and 2010 is really a global phenomenon as the entire world becomes increasingly a service-based economy. The manufacturing/GDP ratio in the U.S. fell from 24% to 13% between 1970 and 2010, while the world ratio fell at almost the same rate, from 27% to 16%.

As a share of GDP, manufacturing has declined in most countries since the 1970s. A few examples: Australia's manufacturing/GDP ratio went from 22% in 1970 to 9.3% in 2010, Brazil's ratio went from 24.5% to 13.5%, Canada's from 19% to 10.5%, Germany's from 31.5% to 18.7%, and Japan's from 35% to 20%.

Bottom Line: When we hear claims that "nothing is made here anymore," it's not really the case that somebody else is making the stuff Americans used to make as it is the case that we (and others around the world) just don't manufacture as much "stuff" any more in relation to the growing levels of national income, which the graph above clearly shows.

The main reason that the manufacturing/GDP ratio has declined in the U.S. and around the world is that productivity gains for durable goods have significantly lowered the price of those goods relative to: a) the prices of services, and b) household incomes, as I pointed out in this CD post on the "miracle of manufacturing." In other words, the declining manufacturing/GDP ratio reflects declining prices for manufacturing goods, which is a sign of economic progress, not regress. The standard of living around the world today, along with global wealth and prosperity, are all much, much higher today with manufacturing representing 16% of total world output (including the U.S.) compared to 1970, when it was almost twice as high at almost 27%. And for that progress, we should celebrate, not complain about the "decline of manufacturing."

1. "For the first time in recorded history, America bought more wine in 2011 than any other country in the world."

2. "Napa Valley experienced another cooler than average wine growing season — a decade-long trend. The cool summer led to “the latest start to harvest that any vintner or grower can remember." The first grapes for the sparkling harvest were brought in on Aug. 29."

Sunday, January 01, 2012

Huge Occupational Differences by Gender Exist. Is That By Choice or Is It Gender Discrimination?

Occupation Category

Percent Female

Management and Professional

51.5%

Service

56.8%

Sales and Office

62.9%

Farming, Fishing, Forestry, Construction and Maintenance

4.6%

Production, Transportation and Material Moving

21.2%

Source: BLS

The table above shows the percent of female workers in 5 major occupation categories, based on data for 2010 just released by the BLS (Table 11). Women are over-represented in the first three categories listed above, and under-represented in the last two.

Am I just being a total sexist, or is it possible that women might actually disproportionately prefer work environments that are relatively safe, indoors, air-conditioned, not physically demanding, and comfortable (office jobs) and men disproportionately tolerate work environments that are relatively unsafe (see CD post about the 12:1 male-female occupational fatality ratio), outdoors, and physically demanding (farming, fishing, logging, manufacturing, roofing, oil rig workers, etc.)? And if labor markets compensate workers with wage premiums for unsafe, uncomfortable, and physically demanding work, could that explain some of the observed gender-based wage differences? Or do any observed gender disparities, e.g. occupational differences, reflect conscious or unconscious sex discrimination?

More Apostrophe Abuse: It's vs. Its

"Its" only been about six "week's" since my last rant about apostrophe abuse, but they just keep appearing in the CD comments, at the rate of about one per week. Here are the latest "violation's" that deserve a public "punctuation citation":

1. “… their argument needs some crutches to stand on it's own."

2. “... a free-trade advocate treads very close to trade sanctions against China for it's currency manipulation."

3. "The Netherlands isn't egalitarian because of it's government, it's egalitarian because of it's culture." (two "abuse's" in one sentence!)

Whirlpool's Latest Anti-Consumer Rent-Seeking Attempt to Use Government Force to Raise Prices

Below is a slightly revised Saturday WSJ article about Whirlpool's latest rent-seeking attempt to use the coercive power of the U.S. government to protect itself from its more efficient foreign rivals (appliance makers) in South Korea. To paraphrase H.L. Mencken, trade policy is frequently like two foxes (domestic producers like Whirlpool and the U.S. government) and a chicken (consumers) taking a vote on what to eat for lunch. These revisions reflect the voice of the millions of unorganized consumers, whose views are generally disregarded when trade policy is decided.

"Whirlpool Corp., battered by price competition on home appliances, asked the U.S. government Friday to impose duties on imports oftaxes and higher prices on American consumers who purchase residential washing machines made by South Korean rivals Samsung Electronics Co. and LG Electronics Inc.

This marks the second time in 2011 that Whirlpool has sought to use U.S. trade lawsengaged in rent-seeking to protect itself from more efficient importsforeign rivalsby imposing higher prices on Americans who purchase appliances for their homes. In March, the company asked its government enablersfor duties onto impose higher prices on every American who decides to purchase an imported refrigerators.

Whirlpool, based in Benton Harbor, Mich., and the world's biggest maker of appliances, in its latest traderent-seeking move for trade protection against its foreign rivals accused the two Korean companies of "dumping"selling washers made in Korea and Mexico into the U.S. market at prices below their production costs. Whirlpool also said its rivals benefit from various Korean government subsidies. Based on their purchasing decisions, American consumers have overwhelming expressed their support for low-cost washers from Korea, and they have benefited collectively by saving millions of dollars. And to the extent that Korean taxpayers have subsidized washers sold in the U.S., some consumers have expressed their gratitude to the Koreans for the generous foreign aid they have provided to American households during these tough economic times.Because it’s been unable to compete effectively against lower-cost rivals, Whirlpoolnowneedsthe coercive power of the government to do what it can to defendprotectitself from increasingly tough Korean competition amid sluggish U.S. demand, said David MacGregor, an analyst at Longbow Research in Cleveland. LG and Samsung sold tens of thousands of washers at deep discounts, sometimes as much as 50%, during the recent Black Friday sales period, Whirlpool said.Whirlpool tried to limit its Black Friday promotions this year and ended up losing market share. Partly because its recent marketing strategy failed, the company decided to seek protectionist trade policies that would coercively increase Whirlpool’s market share for washing machines with government force.In its earlier trade case filed in March, Whirlpool soughtimport duties ongovernment force to impose a taxon every American who purchasesa premium-priced refrigerators with the freezer section at the bottom, made by the same Korean companies in Korea and Mexico. The U.S. Commerce Department in October said in a preliminary finding that dutiestaxesof as much as about 37% could be appliedimposed on Americans who purchase those refrigerators, subject to further government reviews that would not consider the negative effects of higher prices on thousands of U.S. consumers.Whirlpool makes washers under the Whirlpool, Maytag, Roper, Estate, Admiral, Amana, and Crosley brands in the U.S., and also makes store-brand washers for some retailers. Whirlpool said it believes it accounts for 95% of all large residential washers made in the U.S., but would like to further increase its washer market share towards 100% with government assistance, i.e. crony capitalism."

Saturday, December 31, 2011

Residential Natural Gas Prices Are Dropping in PA and OH, Thanks to the Marcellus Shale Boom

1. "An increased supply of natural gas -- thanks in part to development in the Marcellus Shale -- as well as warmer weather patterns have lead to lower gas prices for Western Pennsylvania customers in the first quarter of 2012. All three utility providers in the region announced lower rates Friday for the quarter starting Jan. 1 and extending through March 31.

2. "Columbia Gas of Ohio customers have something to look forward to in January: bills that are lower than they were a year ago. The company this week said consumers who buy natural gas through its standard service program will pay 19 percent less than in January 2011. Record levels of natural-gas production in the U.S. are a major factor in the price drop.

“Our price for natural gas today is nearly as low as it was 10 years ago. How many other companies can say that about their product?” Jack Partridge, president of Columbus-based Columbia Gas of Ohio, said in a statement."

Wall Street Journal -- "U.S. natural gas prices fell to their lowest point in more than two years, underscoring how the nation's booming energy business is becoming a victim of its own success. Mild weather and oversupply have pushed the fuel's price below $3 (see chart above).

Prices for the commodity have been under pressure over the last couple of years, as new drilling techniques unlocked vast new stores of natural gas from shale formations and other so-called unconventional reservoirs. But in the last two months, the steady price decline has turned into a free-fall, as unusually mild temperatures across much of the U.S. have damped demand for gas to heat homes and offices.

Natural gas for February delivery settled Friday at $2.989 per million British thermal units, the lowest closing price for the commodity since September 2009 (see chart). It closed below $3 in the winter for the first time in nearly a decade.

"The sub-$3 levels for gas prices in the winter really point to the incredible amount of nonconventional gas that has come onto the market the last two years," said Gene McGillian, analyst at Tradition Energy in Stamford, Conn. "Our production levels, our mild winter and the gas we have in storage have combined to crush natural gas prices this month."

Natural gas traded as high as $13 per million British thermal units in July 2008. But in recent years, domestic production boomed, with horizontal drilling techniques and hydraulic fracturing, or "fracking," helping producers unleash a flood of gas from shale formations in Pennsylvania, Arkansas and elsewhere.

Natural gas production in the lower 48 states hit a record 71.3 billion cubic feet a day in October (see CD post). The bonanza has ushered in lower prices for many consumers and businesses. New Jersey's Public Service Electric and Gas Co., citing lower costs partly due to shale drilling, reduced residential gas rates on Dec. 1 by 4.6%, bringing to 35% the utility's total decrease since January 2009.

Shale drilling has also created jobs and the prospect of greater energy independence, while raising environmental concerns. But the fresh abundance of natural gas has also weighed on its price, undercutting the profitability of the business for energy companies.

Still, due in part to the structure of the business, the torrid pace of natural gas production shows few signs of slowing. Producers often have a limited time to begin drilling once they lease property, which leads many to drill wells regardless of commodity prices or risk losing their hold on reserves. Other companies are forced to drill by the terms of joint ventures they signed when the outlook on gas prices was rosier."

MP: Overall, the fact that the shale gas industry is "becoming a victim of its own success" is only a temporary "problem," and demonstrates that the price system and competitive market forces are working as expected: an abundant supply of natural gas leads to falling prices, which lowers the profits of producers, which then leads to automatic, self-correcting adjustments and responses as the natural gas market moves towards a new equilibrium.

All of those automatic adjustments (increased demand and decreased supply) will raise the price of natural gas over time, eliminate any economic losses currently being incurred by producers because of the low prices (and drive economic profits to zero in the long run), and the market will move towards a natural market-clearing equilibrium that eliminates the current "oversupply."

Friday, December 30, 2011

The New Age of America's Energy Abundance: The No. 1 U.S. Export This Year Will Be Petroleum

Top 15 U.S. Exports, January-November 2011

Rank

Export Category

Jan.-Nov. 2011 (millions)

1

Petroleum products

$87,543

2

Pharmaceutical preparations

$37,547

3

Industrial machines, other

$37,456

4

Semiconductors

$36,898

5

Chemicals-organic

$32,514

6

Plastic materials

$30,219

7

Telecommunications equipment

$29,885

8

Electric apparatus

$29,147

9

Nonmonetary gold

$27,821

10

Civilian aircraft

$27,179

11

Medicinal equipment

$26,591

12

Computer accessories

$26,520

13

Chemicals-other

$24,150

14

Industrial engines

$23,246

15

Engines-civilian aircraft

$21,648

Source: BEA

NEW YORK (AP) -- "For the first time, the top export of the United States, the world's biggest gas guzzler, is — wait for it — fuel.

Measured in dollars, the nation is on pace this year to ship more gasoline, diesel, and jet fuel than any other single export, according to U.S. Census data going back to 1990 (see table above of the top 15 categories for U.S. exports through November of this year). It will also be the first year in more than 60 that America has been a net exporter of these fuels. The last time the U.S. was a net exporter of fuels was 1949, when Harry Truman was president.

Just how big of a shift is this? A decade ago, fuel wasn't even among the top 25 exports. And for the last five years, America's top export was aircraft.

The trend is significant because for decades the U.S. has relied on huge imports of fuel from Europe in order to meet demand. It only reinforced the image of America as an energy hog. And up until a few years ago, whenever gasoline prices climbed, there were complaints in Congress that U.S. refiners were not growing quickly enough to satisfy domestic demand; that controversy would appear to be over.

Fuel exports, worth an estimated $88 billion in 2011, have surged for two reasons:

1. Crude oil, the raw material from which gasoline and other refined products are made, is a lot more expensive. Oil prices averaged $95 a barrel in 2011, while gasoline averaged $3.52 a gallon — a record. A decade ago oil averaged $26 a barrel, while gasoline averaged $1.44 a gallon.

2. The volume of fuel exports is rising. The U.S. is using less fuel because of a weak economy and more efficient cars and trucks. That allows refiners to sell more fuel to rapidly growing economies in Latin America, for example. In 2011, U.S. refiners exported 117 million gallons per day of gasoline, diesel, jet fuel and other petroleum products, up from 40 million gallons per day a decade earlier."

HT: Bill Greenway

Update: The chart below shows that net oil imports this year of 45.4% of U.S. consumption will be the lowest since 1995. So while the U.S. becomes a net exporter of fuel for the first time since 1949, net oil imports are falling to a 16-year low.

Krugman: There's No Grand Government Conspiracy to Hide Inflation and MIT's BPP Data Confirm That

From a December 18 blog post by Paul Krugman, who I happen to agree with on this issue:

"One response of inflation-fearers to the absence of the inflationary
outburst they’ve been waiting for is to reject the numbers, and claim
that the BLS is hiding a much higher rate of inflation than the official
numbers say. You see that a fair bit in comments, and some credulous
mainstream figures (i.e. Niall Ferguson) have also bought into this
story. How do we know that it’s wrong?

We now have price measures calculated independently by people not in the government — in particular, the MIT Billion Prices Project.
The BPP collects prices from the internet; this means that it’s not a
perfect match for the consumer price index, which includes things such
as services that are generally not sold online. But if inflation were
much higher (or much lower) than reported, you’d expect to see a big
divergence between the independent index and the official stats. But you don’t (see chart above).

Forty months into the project, the BPP shows a price rise about a
third of a percentage point higher than the CPI. That’s around 0.1% higher inflation annually -- i.e., essentially nothing. Sorry, folks, but there’s no grand conspiracy to hide inflation."

MP: A well-known government inflation skeptic is John Williams (Shadow Government Statistics), who claims that the current 3.4% "official" annual inflation rate through November (NSA) as calculated by staff economists at the BLS is being manipulated to show a downward bias, when his "unbiased and un-manipulated" inflation is closer to double that rate, or about 7% (calculated using the methodologies in place in 1980).

But Krugman makes a good point - why doesn't the alleged downward government bias show up in a huge difference between BLS and BPP inflation rates, with BBP inflation being much higher? The current BLS-reported annual inflation rate of 3.4% is actually slightly higher than the 3.25% BPP annual inflation rate through November, so if anything, the government measure of inflation might be showing a slight upward bias.

Q: If there is a government conspiracy to hide inflation, why is the government's CPI measure of prices so close to the price index compiled from the internet by MIT?

BPP@MIT Data Show Inflation Trending Downward

The charts above shows monthly and annual inflation rates from the Billion Prices Project @ MIT over the 12 month period ending at the end of November. According to the BPP website, the index is "designed
to provide real-time information on major inflation trends, not to
forecast official inflation announcements. We are constantly adding new
categories of goods, but we do not cover 100% of CPI goods and
services. The price of services, in particular, are not easy to find
online and therefore are not included in our statistics."

Bottom Line:
Monthly inflation, measured by the BPP @ MIT, has been trending
downward since February, and at the end of November was showing slight deflationary pressures. Similarly, BBP annual inflation has been trending downward since last summer and reached an eight-month low at the end of November. According to this real-time measure of inflationary trends in the U.S. economy, inflationary pressures are gradually moderating, and there is even evidence now of short-term deflation for the month of November.

Restaurant Indexes Improve in November With Strongest Net Positive Sales Since August 2007

"Driven by positive same-store sales and an increasingly optimistic outlook among restaurant operators, the National Restaurant Association’s Restaurant Performance Index (RPI) rose to its highest level in five months. The RPI – a monthly composite index that tracks the health of and outlook for the U.S. restaurant industry – stood at 100.6 in November, up 0.6 percent from October (see chart above, red line). In addition, November represented the second time in the last three months that the RPI stood above 100, which signifies expansion in the index of key industry indicators.

“The November increase in the Restaurant Performance Index was fueled by broad-based gains in both the current situation and forward-looking indicators,” said Hudson Riehle, senior vice president of the Research and Knowledge Group for the Association. “Restaurant operators reported their strongest net positive same-store sales results in more than four years, while customer traffic levels also grew in November.”

“Among the forward-looking indicators, restaurant operators’ outlook for both sales growth and the overall economy rose to their highest levels in seven months,” Riehle added.

Restaurant operators reported positive same-store sales for the sixth consecutive month in November. Fifty percent of restaurant operators reported a same-store sales gain between November 2010 and November 2011, while just 28 percent reported a same-store sales decline. This marked the strongest net positive sales performance since August 2007, when 54 percent of operators reported a sales gain and 29 percent reported lower sales.

The Expectations Index, which measures restaurant operators’ six-month outlook for four industry indicators (same-store sales, employees, capital expenditures and business conditions),stood at 100.9 in November – up 0.4 percent from October and the third consecutive monthly gain (see blue line in chart). November also marked the third consecutive month that the Expectations Index stood above 100, which represents a positive outlook among restaurant operators for business conditions in the months ahead."

MP: The improvements in the November restaurant indexes are consistent with the strong improvements in the Conference Board's Consumer Confidence Index in both November and December, and would suggest that the restaurant activity will continue to improve in December and into next year. This is one more indicator that the U.S. economy and recovery are gaining momentum in the final months of 2011.

Thursday, December 29, 2011

October Natural Gas Production Sets New Record

October was another record-setting month for the world's largest natural gas producer, as the U.S. produced all-time record amounts of both gross withdrawals and dry production (consumer-grade gas), according to new data released today by the Energy Information Administration (see chart above). The record-setting gross volume in October (2.48 trillion cubic feet) was above its year-earlier level by 6.4%; and the all-time high for monthly dry gas production was 7.6% above last October, and surpassed two trillion cubic feet for the first month ever.

Over the last five years as unconventional shale gas has become increasingly more available due to advanced extraction techniques (fracking and horizontal drilling), gross withdrawals of natural gas have increased by one-third and dry gas has increased by more than 42%. Welcome to America's new age of energy abundance with enough natural gas to last well into the 22nd century.

Intrade Odds for 2-Term Obama Now Above 52%

As the chances for the Republicans to produce a strong, unifying presidential candidate look less and less likely, and as the economy gradually improves, Obama's chances for re-election keep getting better and better, according to Intrade odds (see graph above). In October and early November, Obama's re-election odds were less than 50-50, but are now slightly above 52%.

Economic Reports: Signs of Ongoing Recovery

1. Rail traffic for the week ending December 24 showed strong gains, with carloads up by 11.9% and intermodal volume up by 22.9% compared to the same week last year. On a year-to-date (YTD) basis for 51 weeks in 2011, carloads are above last year's count by 2.2% and intermodal volume is 5.5% ahead of the 2010 level. Some of the leading weekly and YTD gains in carload volume have been for lumber (30.1% weekly and 8.8% YTD), motor vehicles (23.2% and 9.7%) and petroleum products (36.4% and 11%), which reflects the underlying growth in the construction, manufacturing and energy sectors.

2. The American Staffing Association's Staffing Index of temporary hiring activity reached a year-to-date high of 93 for the week ending December 18, which was the highest weekly index level since last year at this time. In contrast, the ASA Staffing Index was only at 80 and 81 in the comparable weeks in the previous years of 2008 and 2009.

3. The National Association of Realtor's November Pending Home Sales Index reached its highest level in 19 months going back to July 2009 when the index was artificially boosted when buyers rushed to beat the deadline to qualify for the federal government's home buyer tax credit.

4. The Labor Department reported today that the four-week moving average for initial claims fell to a three and-a-half year low of 375,000 for the week ending December 24, and the four-week moving average for continuing claims fell to 3,598,750, the lowest since September 2008, more than three years ago.

5. The 30-year fixed mortgage rate average rose by 4 basis points to 3.95% this week, still incredibly low by historical standards, and probably a factor in the rise in pending home sales.

6. Florida home sales in November showed signs of an improving real estate market in the Sunshine State, with increased sales of 11.4% compared to last year, and median prices stabilizing at the same level as a year ago at around $130,000.

Wednesday, December 28, 2011

Energy Charts of the Year (Updated)

There have been a number of year-end "Charts of the Year" lists recently, see Ezra Klein's Wonkblog, The Atlantic, the BBC, NPR's Planet Money, and AEI's Jimmy Pethokoukis. But every one of these lists of charts missed what might be the biggest economic story of 2011: The new age of energy abundance in the United States, thanks to recent breakthroughs in advanced drilling technologies (fracking and horizontal drilling) that have unlocked vast supplies of previously inaccessible "unconventional" natural gas and "tight" oil from shale formations around the U.S.

Below are my six (updated) "Energy Charts of the Year" that help tell the story of the "shale revolution" that is transforming America's energy outlook, with major, positive implications for U.S. energy security, economic growth and job creation, a manufacturing revival, and even government revenues.

1. U.S. net oil imports in 2011 (through November) were only 45.4% of domestic consumption, which is down from the peak of 60% in 2005 and at the lowest level since 1995, thanks to greater energy efficiency and reduced demand, but also in large part due to increased domestic oil production (see chart below).

2. The epicenter of the domestic shale revolution is the oil-rich Bakken region in western North Dakota, which has turned North Dakota into America's "Economic Miracle State." The ongoing record-setting oil production in the Peace Garden State (see chart below) continues to make it the most economically successful state in the country, with record levels of employment and income growth, increasing tax revenues, the lowest home foreclosure rate in the country, a strong real estate market with consistently rising prices, and jaw-dropping jobless rates in many counties of the Bakken region below 2%. At the current pace of record-setting monthly gains in oil production, North Dakota will likely surpass both California and Alaska sometime in early 2012 to become the No. 2 oil-producing state in the U.S.

3. North Dakota currently boasts ten counties with jobless rates below 2% in October, but at the epicenter of the Bakken region in Williams County, home of the city of Williston, the jobless rate in October was an unbelievable eye-popping 0.9%, see chart below.

4. Moving east to the gas-rich Marcellus shale formation covering Pennsylvania, Ohio and West Virginia, the chart below shows the dramatic increases in domestic natural gas production over the last five years. After about a decade of stable gas production, the advanced fracking technologies starting becoming available about five years ago and boosted domestic gas production by almost 25% since 2006 (see chart below). The boom in unconventional shale gas made America the world's No. 1 producer of natural gas, when it passed Russia in 2009.

5. Thanks to the new abundant supply of unconventional shale gas in the U.S., we've now got access to a 100-year supply of the energy resource at the current consumption rate, and prices have dropped significantly. The chart below displays the monthly inflation-adjusted price of natural gas back to 1997, and shows that the current spot price of gas is close to a ten-year low, and is 70-80% below the peaks in 2001, 2006 and 2009. Additionally, gas prices over the last two years have been more stable than any two-year period since the late 1990s; so gas prices are not only close to historic lows adjusted for inflation, but are more stable than in more than a decade. It's the fact that gas prices are now both low and stable that makes it such an attractive source of energy for American manufacturers.

PricewaterhouseCoopers predicts that lower gas prices will help add one million new U.S. manufacturing jobs by 2025. And residential consumers around the country are saving hundreds of dollars this winter, as utility companies in many areas have started to lower rates for piped natural gas.

Update:

6. Here's another graph below (thanks to Junkyard Hawg for the suggestion) that shows the percentage difference in the historical spot prices of oil and natural gas, on an energy equivalent basis, with natural gas prices converted at the ratio of 5.8 million BTUs per barrel of oil. Over the last 18 years, natural gas has been cheaper than oil on an energy-equivalent basis most of the time except for fairly short periods in 1996 (1 month), 2001 (5 months), 2003-2004 (7 months), and 2005 (4 months). For the last 33 months starting in March 2009, natural gas has been more than 50% cheaper than oil, and in November gas was cheaper by a record 80% ($97.21 per barrel for oil vs. $18.79 for gas).

Bottom Line: Thanks to the shale gas revolution, there's never been a time in recent history when natural gas has been cheaper than oil on an energy-equivalent basis.

Job Creation Is the Price We Pay for Obamacare: From "Hire-and-Grow" to "Cut-and-Survive"

"Our company, CKE Restaurants Inc., employs about 21,000
people (our franchisees employ 49,000 more) in Carl’s Jr. and
Hardee’s restaurants. For months, we have been working with
Mercer Health & Benefits LLC, our health-care consultant, to
identify Obamacare’s potential financial impact on CKE. Mercer
estimated that when the law is fully implemented our health-care
costs will increase about $18 million a year. That would put our
total health-care costs at $29.8 million, a 150 percent increase
from the roughly $12 million we spent last year.

The money to cover our increased expenses will have to come
from somewhere. We are a profitable company and, after paying
our obligations, we reinvest our earnings in the business.
Reinvesting in the business is how we grow, create jobs and
opportunity. This is true for most U.S. businesses.

The complexity of this legislation makes it hard to
anticipate costs in the future. Our investments pay off -- when
they are successful -- over the long term. Because we don’t know
what our health-care expenses will be in two or three years, we
are unable to determine with any certainty how much our
investments will have to return for us to be profitable. All of
that counsels in favor of holding off on new investments and
saving our funds. We want to grow. But we are unable to do so
knowing that large and undetermined liabilities will absorb
funds we otherwise would invest for expansion.

Washington needs to understand that
legislation like the health-care law has costs as well as
benefits, that the costs suppress job growth, and that when too
much legislation kills too many jobs, everyone suffers. Chief executives have responsibilities to their existing
employees, customers and shareholders. We simply cannot risk
their jobs and their money by investing when we know that
legislation like Obamacare will make it so much harder to earn a
profit. The sooner both parties in Washington understand this,
the sooner we can all begin looking for ways to strengthen the
social safety net without hurting the economy."

Crony Capitalism Shuts India's Doors To Wal-Mart

India's Prime Minister Manmohan Singh and his Congress Party recently
capitulated to political pressure and reversed their earlier decision
to expand foreign direct investment in India's nearly $400 billion
retail sector, which would have bolstered a slowing domestic economy and
created millions of new jobs. Call it India's version of America's recent "Keystone XL pipeline
cop-out" — and an illustration that it's not just America's political
leaders who talk about creating jobs but then frequently defer to
favored special-interest groups and leave jobs on the table.

By delaying retail foreign direct investment, the Indian government has
protected the intermediary status quo, and ignored the plight of 500
million desperately poor Indians living on farms who have publicly
voiced their support of allowing retail giants to enter the Indian
market.

For decades, the intermediaries and middlemen of social and financial
status have formed a powerful political force that now perpetuates a
humanitarian tragedy by continuing to be protected from foreign
competition. By delaying the decision that would allow multibrand retailers like
Wal-Mart to enter India's booming retail sector, the Indian government
is passing on a valuable opportunity to energize the retail market,
create millions of new jobs and break the supply chain cartel that has
impoverished India's small farmers.

The Year in Four Charts

Markets in Everything: RedNek Wine Glass

MSNBC -- "America's love affair with the irreverent, tacky and politically
incorrect is making millions for at least one business. Carson Home
Accents, a 41-year-old, family-owned company based in Freeport,
Pa., struck gold recently when it started manufacturing and selling
RedNek Wine Glasses. The company, a wholesaler of gift and home
decor items, started making the wine glass -- simply a Ball Mason
jar glued on top of a Libbey candlestick holder -- 10 months ago,
and in less than a year, the product has had $5 million in sales."

1st Super-Computer (1956) v. Today's Flash Drives

Updates on the Shale Revolution

1. Wall Street Journal -- "Shale-gas production is spurring construction of plants that make
chemicals, plastics, fertilizer, steel and other products. A report
issued earlier this month by PricewaterhouseCoopers LLC estimated that
such investments could create a million U.S. manufacturing jobs over the
next 15 years.

Even foreign manufacturers are joining in. Low U.S. electricity and
natural gas costs were a factor in the decision by Brazil's Santana
Textiles to build a $180 million denim plant now under construction in
Edinburg, Texas. Santana initially considered putting the factory in
Mexico but found that electricity costs would be 30% lower in Texas."

2.Oil jobs the new gold as thousands join N.D. rush -- "Williston, with a population of around 20,000, was a quiet North
Dakota town, surrounded by oil fields that had been in decline for
decades. Now, it is the heart of the Bakken, a new oil play that has
abruptly woken one of the sleepiest states in the Union, transforming
North Dakota into an energy heavyweight. It has also made Williston, whose surrounding county now has the lowest
unemployment rate in the entire country, a new destination for America’s
jobless, homeless and would-be rich."

3.Ohio sand turns to gold as drilling boom comes to Buckeye State -- "Rob Sidley is sitting on a gold mine, thanks to Mother Nature. His family-owned company produces the special sand needed for the drilling boom in Ohio’s deep layer of Utica shale. The sand is perfect for the hydraulic fracturing process — or
fracking — which uses force to open cracks in the shale and free up
natural gas, oil and other lucrative products.

Nationally, the market for American fracking sands quad­rupled from 2000 to 2009." (HT: Energy Tomorrow)

4. Associated Press — "The United States has record supplies of natural
gas and plenty of reasons to promote natural-gas powered cars, but so
far consumers, manufacturers and fuel suppliers haven't shown much interest.

Now,
a major natural gas developer's plans to vastly increase the number of
truck stops that offer liquid natural gas could help boost its use in
the vehicles that burn the most fuel, while promoting its availability
to a wider market. Lots of natural gas is available, if U.S.
drivers decide to use it. In just a few years, domestic natural gas
supplies have increased by trillions of cubic feet through shale finds,
boosting the supply to the point where plans are in place to export part
of the overflow."

Some Great Questions from Don Boudreaux

1. Why are the pundits and politicians who most fear the motives and the power of private corporations typically also the most strident advocates of higher tariffs to protect these corporations from competition?

2. Why do so many conservatives who profess dedication to individual liberty oppose the liberty of adults to smoke marijuana and to consume other narcotics?

3. Why do so many "progressives" believe that higher marginal tax rates on incomes will not dampen workers' efforts to earn income, but that higher marginal tax ("tariff") rates on imports will dampen importers' efforts to supply imports?

4. Why do so many "progressives" who preen publicly about their magnanimity toward the poor want to prevent foreign workers -- most of whom are far poorer than is any American -- from bettering their lots by competing freely against relatively rich American workers?

5. In the same vein, why do so many "progressives" -- nearly all of whom seem to regard differences in income earnings across workers to be an Olympian injustice -- support protectionist policies that artificially enhance the incomes earned by relatively rich American workers by artificially reducing the incomes earned by much-poorer foreign workers? Why is this greater income inequality of no concern to "progressives"?

6. Why are "progressives" madly obsessed with inequality of incomes but not with inequality of work effort, risk taking, prudence, courage, honesty, integrity, ambition and dedication? Monetary incomes, after all, are largely a result of the application of these qualities: Those who apply more of these qualities to their lives and careers generally earn higher incomes than are earned by those who apply fewer of these qualities to their lives and careers.